Introduction to Macroeconomics Unit 3 Economics Honors Rixie

Understanding Macroeconomics Section 1

Two Major Goals of Macroeconomics To study: How the economy is behaving Which factors are causing economy to grow/shrink

Gross Domestic Product (GDP) Total value of goods and services produced in a country or state in a given year Primary economic indicator Summarizes total output

Economic Challenges Keeping workers employed Problem: high unemployment Keeping prices stable Problem: inflation

Money Models Macro looks at: How it is used Macro uses them to: How an economy makes $ How governments use money to influence economic activity Macro uses them to: Help identify patterns and predict changes to the economy

Impact of Studying Macroeconomics People can anticipate: Economic actions taken by the government Political debates regarding government actions Major economic events, such as periods of high employment or inflation

What area of economics focuses on the interactions between individual consumers and producers? aggregates macroeconomics microeconomics markets

Macroeconomics Aggregates Section 2

Review of Microeconomics Focuses on direct interactions between producers and consumers Supply – determined by price and costs of production Demand – determined by price and need/desire for the good

Countries, not Markets Macroeconomics looks at supply and demand in the aggregate (think “total”) Aggregate demand – the total quantity of goods and services demanded in an economy

Aggregate Supply The total quantity of goods and services produced in an economy at various price levels A.K.A. total output Can change as a result of: Corporate taxes Regulations Technology

Long Run Aggregate Supply Short Run Aggregate Supply Vertical curve (LRAS) Determined by all factors of production Upward sloping curve Producers need time to respond to changes

Macroeconomic Equilibrium Found where AS and AD meet Occurs when a society is using all resources efficiently Long-run equilibrium indicates operating efficiently at full-employment

The aggregate is a type of economic system. the total number of goods demanded or supplied. a form of revenue. the total profit made on sales.

According to this graph, how does supply behave in the long run? Output remains constant. Output increases. Output cannot be predicted. Output decreases.

The Circular Flow Model Section 3

What does it do??? Demonstrates interactions within the economy: Between households (consumers) and firms (producers) Between sectors of the economy (financial, gov’t, foreign) Shows that firms and households benefit from each other

Injector Factors: Ways that sectors bring money into the economy Leakage Factors: Ways that sectors remove money from the economy

Which statement best describes the circular flow model? The model represents the movement of money and resources throughout the economy. The model represents the interactions within sectors. The model represents the flow of goods and services abroad. The model represents the changing relationships between actors.

The End – Yayyyyy!